Tyrosyl phosphorylation is a key regulatory mechanism for normal cell growth, differentiation, and death. The steady state level of tyrosyl phosphorylation on any protein is determined by he opposing actions of protein tyrosine kinases and phosphatases. SHP-1 is a protein tyrosine phosphatase that has been shown to be involved in the negative regulation of signaling events induced by cytokines, growth factors and antigens. Mutations in the SHP-1 gene in mice cause the motheaten (me/me) phenotype. Mice homozygous for the me allele, which results in the absence of any detectable SHP-1 protein, display a panoply of disorders in 11 hematopoietic lineages. These mice provide a valuable tool to combine in vitro biochemical assays with in vivo and ex vivo biological studies. Our long range goal is to understand how SHP-1 influences the growth and differentiation of hematopoietic cells. This application will attempt to elucidate the involvement of SHP-1 in immature and mature cell functions. Recently, we and others have shown a clear role for SHP-1 in T-cell development. However, the underlying molecular mechanism remains unknown. In the first Aim, we propose to address this question using fetal thymic organ cultures (FTOCs). Analyses of me/me:DO11.10 thymocytes indicate at SHP-1 helps to set TCR signaling thresholds in positive and negative selection. Studies of FTOCs from these mice will be applied to follow thymic T-cell development in detail. In particular, we propose to rescue the motheaten phenotype by reconstituting FTOC from me/me:DO11.10 mice with wild type and mutants of SHP-1 via retroviral gene transfer. While SHP-1' negative regulation of TCR-mediated signaling has been shown, its mechanism of action ha yet to be defined. Recently, one type of specialized membrane microdomains (referred to as lipid-rafts) has been recognized for its importance for TCR signaling. The rafts localization of several key players of early T-cell activation has be n shown to be critical for signaling. Our working hypothesis is that SHP-1 localizes to he rafts and that this localization is important for its function. Indeed, we observe that a fraction of SHP-1 localizes to the rafts. In the second Aim, we propose to study the mechanism of SHP-1's localization to the rafts and its functional consequences. In the third Aim, we will test the hypothesis that SHP-1 plays a role in altered peptide ligand signaling. While SHP-1's role in T-cell development has been recognized, its role in mature cells is less understood. We will use several approaches to address this question with a focus on agonist/partial agonist/antagonist signaling. We will attempt to characterize the responses to altered peptide ligands in wild type and SHP-1-deficient CD4+ DO11.10 TCR-expressing lines as well as CD8+ cytotoxic T-cell clones.